With a relatively high income plus a fair amount of deductions would it be of any concern to use a home tax program as opposed to hiring a tax professional to file? I have heard from no one in particular that with a higher income you should always use a tax professional. Is it possible to raise red flags just by filing yourself?
A. First of all, I do not believe that the IRS makes any pre-judgement of “taxpayer-prepared” returns. So, while not always the best way to go, there are not any “red flags” raised just because you prepare your own return, whether manually or via a “home tax program” (is that anything like a “home pregnancy test”?).
That being said, I certainly wholeheartedly agree that with a higher income, or rather with anything other than the simplest of returns, you should always use a tax professional instead of relying on tax software.
As I have written here and elsewhere many times in the past, no tax preparation software is a substitute for knowledge of the tax code. And no tax preparation software is a substitute for the services of a trained tax professional!
As with any software program the rule is "garbage in - garbage out". If you don't know how to enter the information, or what information to enter, you will not get the best, or even the correct, answer.
Forget about those tax-time television ads that tell you even a caveman can prepare his taxes correctly simply by using a particular tax software program. It just ain’t so!
When the IRS comes after you for errors on your tax return you can’t blame it on the software. The US Tax Court has on two separate occasions rejected the "Turbo-Tax Defense" when a taxpayer attempted to blame tax preparation software for a negligent tax return.
As a professional tax preparer I attend several tax preparation workshops, seminars, conferences and conventions during the year. I am constantly hearing instructors and participants alike discuss problems with their tax preparation software, the answer often being that one has to override the system and "force" the correct entry.
FYI, in 35+ years of preparing tax returns I have never used tax software to prepare a 1040. I prepare 400+ tax returns a year – all by hand. When I am asked what tax software I use I simply point to my head, indicating my brain.
IRS statistics indicate that taxpayers using do-it-yourself tax software spend an average of between 6 and 10+ hours longer preparing their tax returns (depending on the number of worksheets and schedules) than taxpayers who do manual calculations. Further, the IRS estimates that do-it-yourself software users spend an average of 10 to over 20 hours longer on the return than if they used a paid tax preparer, again depending on complexity.
The bottom line is – if you don’t know what you are doing do not rely on a tax preparation software package to make up for your lack of tax knowledge. Using a tax professional will save you time, aggravation and money.
You can click here to find a tax professional in your area. FYI, I am not looking for any new 1040 clients.
While I am on the subject – I got the following ASK THE TAX PRO email submission at the tail end of December:
Q – “I've had a negative AGI the past two years and when I go to TurboTax to enter my info it doesn't ask if I want to carry it over like it did in years past. Is this still possible? And if so, where would I enter it?”
My email response to the submitter was as follows:
“I have absolutely no idea!!! In 35 years of preparing tax returns I have never used any tax preparation software. ASK THE TAX PRO is not a forum for specific tax software questions! If you do not know anything about taxes you should not be relying on tax software.”
To repeat – ASK THE TAX PRO is not a forum for specific tax software questions! Even if I did use tax software I would not offer free “how to use your software” information online – that is what “technical support” is for.